The Value of Your Time
Dr. Joel J. Napeñas
8 minute read
Have you ever asked yourself the question: “What is the value of my time?”
There are a number of ways to look at it. As a professional or service provider, if you are someone who provides a valuable service then you should assign a larger monetary value to your time. However, given that time is the only asset that, once expended, can never be recovered or earned back, it is priceless. Thus, Time is the most valuable asset that you have.
Average wages in the United States
In the United States, as of May 2020, the median hourly wage in the U.S. was $20.17, the mean hourly wage was $27.07, and the annual mean wage was $56,310. Using the annual mean value, assuming filing taxes as head of household, based on 2021 federal tax rates, and using our home state of North Carolina’s tax rate of 5.25%, and Social Security deductions of 6.2% (while not factoring any tax breaks or deductions), the annual mean take home decreases to $43,179. If this was a person that works an average of 40 hours per week for 50 weeks, this would translate to a net hourly wage of $21.59.
This begs the question that, if one were to take their ongoing monthly expenses, pay off their debts, or save up for that big purchase (e.g.: down payment on a home) how many hours would they have to work in order to support their lifestyle?
Most individual’s single largest expense is their home. Let’s assume that the average earner is looking to buy their first home in our home city of Charlotte, NC, where the mean home value (according to Zillow in November 2021) is $343,760. (This actually is about where the median home price is nationally) Let’s say that they were able to qualify for a first time mortgage of 90% and are putting a 10% down payment. Therefore, they would need to work 1592 hours in order to make the down payment, which translates to almost 40 weeks of full time work.
How about the mortgage of that home? At interest rates at time of publishing (3.782%), this is $1438 monthly for a 30-year mortgage. Therefore, in order for them to pay for the roof over their head, 66.6 hours of their working time (more than a week and a half) is devoted to paying for their mortgage, which will need to go on for the next 30 years.
Wages of a high income earner
Fortunately, if you are a high income earner, like a dentist or physician, you do have more leeway with a larger annual income. But still, that income is not passive and requires a devotion of time. Based on the American Dental Association’s 2019 Survey of Dental Practice, the average income for dentists in private practice in 2018 was $190,440 for general dentists and $330,180 for specialists.
For the general dentist, their net annual wage after taxes and Social Security is $128,366. Assuming a 40 hour work week (consisting of 4 10-hour days) with 3 weeks vacation, this translates to an hourly rate of roughly $65 per hour, which is 3 times the average American worker. In the case of the specialist, this translates to an annual net wage of $203,736, and $104 per hour, with the same assumptions, which is almost 5 times the average.
This sounds like a great deal, right? That is why we go through 8+ years of education and amass hundreds and thousands of dollars of debt to be in this profession. With all the hard work and sacrifice comes the expectation of rewards and a standard of life higher than ‘average.’
Using the example of a home, an established mid-career dentist will not be going for the ‘average’ starter home, as they want to be in the safest neighborhoods, in the best school districts, and be surrounded by optimal social circles. Using my local example, the highest median income in the entire state of North Carolina is the town of Marvin, NC, which has its fair share of physicians, dentists and high income earners and is a stone’s throw away from our residence. As of the time of this writing, the average home price in Marvin is $943,966.
Assuming that the dentist and dental specialists are well established financially and had been able to put 25% down on the purchase of their home (e.g.: through the sale of their previous home and from savings), with the same assumptions, they would have to make monthly payments of $3251 per month. For the dentist, that would translate to 50 working hours per month, meaning that, roughly 5 days (more than a quarter of their work month) is devoted just to paying their mortgage. For the specialist, it is 31.2 working hours per month, just over 3 working days. Over the lifespan of that 30-year mortgage, to pay off the principal and interest of their mortgage, and at the current hourly rates, the dentist would have to work 18,732 hours, or 9.75 working years. For the specialist, it is 11,708 hours, or just shy of 6 working years. Now this may not be an entirely fair projection, as I did not factor in wage or income increases over the years, however even with average increases, this would still translate to a significant amount of time devoted just to pay for the mortgage for your home. This does not even factor in other costs associated with homeownership such as property taxes, maintenance and insurance.
What about student loans? According to the American Dental Education Association, the average graduating dentist’s debt in 2019 is $292,169. The rough estimation is that every dollar of debt is 1.5 to 2 times the amount to pay off. Therefore, a general dentist could be devoting as much as 9,000 working hours (or 4.7 full time working years), and a specialist over 5,600 working hours (or 2.9 full time working years) just to pay off their student loans.
Taken together, between a mortgage for a dream home, and paying off student debt, the dentist would have to work 14 years full time, and the specialist will have to work 9 years. This does not include other living expenses, entertainment or the costs of supporting a family.
These examples illustrate that even high income earners can be constrained by their hourly wages in supporting their chosen lifestyle. Now how can one reduce these limitations? One is to reduce your amount of financial commitment. However in the case of choice of home to purchase, certain markets and current trends of rising prices makes this difficult. And again, after achieving a certain goal or milestone after all the years of hard work, one cannot live a life totally deprived of the odd luxuries and indulgences. You will not be going back to the college life of coupon clipping and ramen noodles for dinner anytime soon, nor would you want to subject your family and love ones to that life.
There are many instances in which financial outlays have a return on investment on buying back your time. If you have a task that you hate, are not good at, and takes up a lot of your valuable time that could otherwise be used doing something more productive, then it is worth buying it back. For instance, if it takes you 4 hours on a weekend to do yard work, which equates to $260 of working time for the average dentist, paying someone else to do it for much less (and do a better job) is well worth it (unless you truly love doing yard work).
The other obvious way to reduce the limitations of being on an hourly wage is to find ways to earn more or pay less taxes. The dentist would learn other skills that would enable them to earn more, find efficiencies in their practice and office that would reduce expenses, or take advantage of tax incentives. However, for the dentist or specialist who only relies on what they are able to directly produce from their work there are still hard limits.
Conclusions
Dentists, physicians and high income professionals are in the fortunate position to earn significantly more than the mean household earner. However, between student loans, and lifestyle commitments, their resources are limited, and still require a significant amount of their most valuable asset, their time.
How much is your time really worth? Are you providing value and really earning based on that value? What are the items in our lives that require the usage of that time?
If you know the monetary value of your working time, it allows you to make better decisions on your financial commitments and obligations, how you live your life, and what to do with your time.
If time is your most valuable asset and cannot be earned once lost, then the most important question is, what are the ways that you can optimize, conserve and preserve your time?
One powerful way is to create, invest in or acquire assets that earn money without relying on your time.
Dr. Napeñas, a practicing academic dental specialist in Oral Medicine, is founder and managing partner of 5DH Partners, a real estate investing firm that educates and helps dentists and other professionals generate passive income and build wealth through investing in real estate..
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